Dysfunctional boards can cost companies their shirts

Former BHP chairman Don Argus is calling for board members to come up for election annually. Photo / Bloomberg

Chairmen in publicly listed companies in the United Kingdom are supposed to be independent and there's a rule that directors can't stay on a board longer than nine years.

The regulators there say that directors cannot stay on a board for more than three three-year terms. After that, they are deemed to be "part of the furniture" and no longer able to give independent advice or call management to account when they stray.

In Australia last week, former BHP chair Don Argus called for board members to come up for election annually. He backed an international move to annual re-election of company directors to shake up what he calls "serial offenders" and shore up corporate accountability.

"Annual election provides for accountability to shareholders and the ability for shareholders to express a view about the performance of each director as their representative," Argus told the Australian Institute of Company Directors annual dinner in Perth. He said United States corporations were adopting annual re-election "in many instances".

Does New Zealand have an issue with boards?

Yes we do. While most people think that our largest and most august business institutions have sophisticated programmes of chairman and director succession planning, the plain truth is that many of our boards are often not properly set up, they are dysfunctional, they are unstable, they are highly political and they really can't afford to be so any more.

We know of one case where a potentially world-leading New Zealand company failed to develop the right leadership and as a result is now trading at half its former value and being beaten soundly by overseas competitors.

That company failed to understand until it was too late that in order to "go global" you need global leaders. Not just local leaders in local jurisdictions, but truly international leaders who have worked and lived in different global locations and who understand how to operate globally yet think locally.

A survey by Heidrick & Struggles of more than 50 chairmen in the United Kingdom revealed that boards are becoming more intimately involved with the strategy and direction of the companies they serve.

Chairmen are drawing on their own experience and insights to help chief executives develop and adjust strategy, not waiting passively for board presentations.

In New Zealand, we are starting to see the blurring of the roles of chairman and chief executive officer. We predict that over the next few years, an intense and strategic working relationship between chairmen and CEOs will become the new norm rather than the exception.

In our estimation, only 20 per cent of boards are appointed following professional consultation. This has to change.

Simon Monks is a partner in the Auckland office of international leadership advisory firm Heidrick & Struggles. He works in the CEO and board practice. David Peters and Ian Smith work in the same practice in London and Sydney respectively.